Buying a home is a dream for everyone—the ache of owning home life with every one of us. The sooner you buy, the pressure on other commitments eases. When you are young, go for a home loan before other commitments squeeze your cash in hand or impact your credit scores. While they do put in a small margin of investment as downpayment and eighty to eighty-five percent of the cost of a home or apartment is financed by loan providers.
With the less down payment and a major part being financed, a home loan application rejection means doom to your dreams. There are two aspects of this whole process:
- The said house or apartment is mortgaged with the loan provider until the EMIs are paid
- The bank has to be convinced that the borrower has a sufficient income level to repay all the EMIs
Now let us look at what are the major reasons why the home loan application gets rejected.
Low credit score
Most of the home loan borrowers are unaware of the fact that a lower credit score means rejection of their home loan application. Generally, a decent credit score of 750 is a must for home loan approvals. There are various sites where a loan borrower can check the CREDIT score online. There are multiple reasons for a low CREDIT score: too many loans, EMI defaults, or delayed credit card payments.
Plan to improve your credit score. It often happens so that you have repaid the loans, and the bank has not updated. So, check the complete transaction details and look for any details that are not updated. Try to ensure that the CREDIT score is between 750 – 800 so that the chances of the home loan application being rejected is reduced.
Home loan providers need to be convinced that the borrower has sufficient income to repay the EMIs. There is no newton’s law, which is followed here, but the thumb rule is “the EMI should not be more than fifty percent of the borrower’s income.” To overcome this, the borrower can show any other income sources like dividends, interests, share of HUF (Hindu Undivided Family), and or share in any other properties or assets has to be submitted with adequate proof to the loan provider.
The next available option is to opt for a co-applicant. The co-applicant or your husband/wife needs to be an earning member. In such cases, the income of husband and wife is considered in totality and helps get the home loan application approved and increase the possibility of a higher loan limit. So, sit with your loan provider to understand how insufficient income can be improved.
High monthly commitments
When the monthly outflow is very high, or the loan commitments are high, your home loan application might be rejected. So, reduce your monthly commitments by closing loans, reducing credit card outstanding, or consolidating multiple loans to a single loan.
Unclear home titles
Generally, titles are a big challenge in Indian states because real estate titles are subject to the laws of different states since different states have a different set of rules. Whenever the borrowers submit the property documents to the home loan provider, they are subject to legal scrutiny. If the legal team finds any kind of fault, the home loan might be rejected. Whenever such faulty titles are recognized, it can be rectified builder provides the necessary documents. The other way to overcome this issue is to look for pre-approved titles. In such cases, the title deeds are pre-approved by the home loan provider.
A little bit of spade work will help in the increasing possibilities in your home loan application being approved.